Page 36 - PowerPoint Template

The Economic Entity Concept

 The activities of the entity be kept separated and distinct

from the activities of the owner and of all other economic

entities such as the owner of the entity, supplier,

customer .

The entity needs to be evaluated separately and the

transaction of different entities should not be accounted
for together.

Example:

The company purchases a car for his wife by using

money from the business’ operations. He had recorded

the purchases as a business’ assets. Besides that, all

the expenses such as fuel oil was recorded as business

expenses.

Conclusion:

The company does not follow the Economic Entity

Concept . The purchase should be recorded as drawing

because the transaction was the personal transaction.
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